Service Companies: Financing Challenges and Solutions

Service companies play a very necessary but unique role in our economy. Service companies can be found in every industry, but they do not provide tangible goods, like traditional product-based businesses. The services these companies provide are invaluable, but finding adequate financing to maintain and grow their operations can be challenging.

Financing Challenges

Securing traditional loans can be difficult for any small business. Lenders set requirements for credit ratings and collateral to qualify for loans, but since service companies do not have physical goods, real estate, or other large assets, they might not meet the requirements for most loan programs. Even non-traditional lending, such as a merchant advance, requires a point-of-sale system to repay the balance. Alternative lending places the majority of the risk on the applicant, so there are usually additional fees and high interest rates, as well. Since service companies operate on a lean business model, taking on debt and high interest rates can severely impact finances and prevent growth.

Solutions for Service Companies

The tangible assets that service companies all have in common are receivables. Many service companies either have contracts with clients, or perform on a per-job basis. The invoices issued have payment schedules of 30 days or longer. During that period, a service company still needs to cover expenses, make payroll, and cover the cost of services rendered to other clients. In short, the lag caused by staggered payment schedules can create a situation where a service company is spending more than it is making. To prevent this and build up capital for growth, service companies take advantage of factoring services. Invoice factoring services are designed to accelerate cash flow and eliminate the lag between payments. Factoring is a simple exchange of receivables for cash. Since factoring is a simple transaction instead of a loan, a service company can preserve its credit ratings, avoid debt, and remove the need for traditional and alternative lending.

At New Century Financial, we provide a comprehensive factoring program for service companies. Our team will work with you to create a tailored solution to help you reach your goals. We give service companies the power to choose which invoices – or parts of invoices – get factored, and provide funding within 24 hours without any hidden fees or long-term contracts. Contact New Century Financial today to get started.